I'm Political Economy editor at Forbes, editor of RealClearMarkets.com, plus a senior economic advisor to Toreador Research & Trading. I have book on how the economy works, Popular Economics: What LeBron James, the Rolling Stones and Downton Abbey Can Teach You About Economics that is set for release in April of 2015. I have a weekly column on Mondays at Forbes.com.

Book Review: Freedom Manifesto by Steve Forbes and Elizabeth Ames

Thinking about the above, Forbes and Ames quote Tim Harford’s uneven, but frequently insightful book Adapt, and his essential point that the U.S. technology/computer sector has been the “most successful industry of the last forty years, [and it] has been built on failure after failure.” So true. Failure of the bankruptcy kind, though painful, is precious for telling us what the markets do and do not want. Considering the financial sector that the political class increasingly deems too important to set free to fail and succeed, we must ask what financial innovations we’ve lost for banks not being treated like the ever-evolving technology sector.

Thinking of finance like we do technology, we must then conclude that bailouts are cruel for restraining the market driven growth of a very important industry. It’s said by politicians that banks are too important to let fail, but it would be more true to say that if they’re as important as we’re told, then we must let them fail and be swallowed by their more skillful competitors precisely because they’re important.

Evidence supporting the claim that too much government “aid” is wrecking banks concerns their role in the economy as is. All of us are aware that unregulated hedge funds are increasingly attracting the best financial talent (the authors brilliantly defend finance as a necessary economic input that enables the “making” of things), and then the authors point out that while “U.S. companies have $1.2 trillion in bank loans; their European counterparts have around $6 trillion.” Exactly. Banks are increasingly irrelevant to our economic health (at the time of the “financial crisis” banks only accounted for 20% of all lending), but perhaps not considered enough is why. Certainly free markets have been trying to minimize the role of banks for at least a century (the Fed was created to reverse this market driven trend), and then, once again throwing gasoline on the proverbial fire with bailouts, it seems the suffocation that results from government supports is making what we know to be banks even less important for corporate finance.

Some say that more regulation is the answer for a financial sector that is frequently fallible (again, this is a good thing, it speaks to evolution if allowed), but the authors very necessarily remind readers that the “financial industry is already the most regulated sector of the economy, overseen by bureaucracies as the Federal Reserve, the Office of the Comptroller of the Currency, the Securities and Exchange Commission, the Commodities Futures Trading Commission, and numerous state agencies.” Despite this massive oversight financial entities still regularly run into trouble, and as for laws meant to erase error, they note that “the MF Global disaster occurred after passage of the Dodd-Frank Bill, and earlier, Sarbanes-Oxley.”

Regulations don’t work, and worse, they create a false sense of security such that we don’t do our own due diligence – think Bernard Madoff. Better to remove all the rules and regulations so that we take control of our lives. As the authors put it, free markets “demand that individuals take responsibility.” We’ve simply got to let market work.

So while we can wish that politicians would meddle less, Forbes and Ames make the essential point that our federal minders thrive on crisis, that “In good times and bad, the problem is nearly always described as an ‘emergency’ – whether it may be a health care crisis, a housing crisis, an obesity crisis, or a jobs crisis.” Think about this for a moment: governments perceive crisis everywhere, and with good reason they do because “crisis” according to them, fulfills “Big Government’s quintessential quest to get bigger.” Put more simply, where private sector actors seek to remove unease from our lives on the way to higher and healthier living standards, governments presume crisis and because they do, they place their need to grow “above the needs of the people.”

Healthcare is the crisis du jour, or more realistically, the always crisis, and the result is further nationalization of healthcare in the form of the monstrosity that is Obamacare. As a result we’re now moving closer to a Canadian style system, but as the authors remind us about Canada, “the average wait time to see a specialist is nineteen weeks – twice as long as two decades ago.” A chilling thought for all of us, but it says here that the wait time they describe explains why Obamacare will never happen in the United States no matter what the Supreme Court says.

That is so because as Forbes contributor Sally Pipes reminds us, Americans are rather impatient people. As she relayed to me a ways back, when she moved from Canada to the U.S. decades ago, her mother told her to not become one of those “impatient Americans.” Yes, Americans are impatient, and because they are they’ll never accept the shoddy care that results from government control. It’s impossible to say how this will happen, but Americans are too innovative and too impatient to wait for what they need, and this personality quirk ensures that the entrepreneurial among us will soon enough figure ways around Obamacare such that in time it will become irrelevant.

So while free, capitalistic markets are the way that human needs are met, and per the late Steve Jobs, the way that entrepreneurs foresee needs “that are not yet on the page”, governments are stagnant. Here the authors quote the great Thomas Di Lorenzo, who observed that “the worse any government bureaucracy performs, as a rule, the more money it gets.” Private businesses do more with less so that they can attract the capital to do even more with less, while governments keep failing on the way to doing less and less at greater and greater cost. Evidence abounds here, but Forbes and Ames reference how “Congress more than doubled SEC funding after the Enron scandal of 2001.”

Taking the above further, Forbes was very clear with his criticism of Fed Chairman Ben Bernanke from day one, and surely he would agree that the Di Lorenzo’s assertion similarly applies to our Fed Chairman. For the Bernanke Fed being caught totally unaware of the looming problems within the banks it was charged to oversee, Congress through Dodd-Frank sought to give our central bank even more oversight power. As for the tragedy that is quantitative easing, it fails every time for obvious reasons that even a five year old would understand (economic growth is not a function of money creation, and worse, devalued dollars scare away investors), yet for failing each time Bernanke gives himself an excuse for even more monetary intervention that will continue to worsen our economic situation.

Contrast the governmental errors that always give us bigger, and more expensive government, with what we get from private actors. Mentioned at the beginning of the review was Forbes’s broad knowledge of seemingly everything, and the authors tell the story of insurance broker Lewis Waterman who, after his “old-fashioned pen leaked during the signing of a major contract”, left to get another one only to find out upon return that a competitor “had swooped in to close the deal and Waterman lost the business.” Of course private actors in search of profit remove unease, and in Waterman’s case he developed the ballpoint pen. Free markets allow for the fixing of problems. End of story.

Even better, the precious pricing signals that unfettered markets give us continue to enhance our lives in countless ways. The authors point to Amazon’s Kindle, an e-reader that hit the market at $400/per. No one would pay for $400 for a Kindle today, but thanks to market forces, no one would be asked to. Profits attract imitators, and as such, “Technology that only a short time earlier had been considered a ‘luxury’ became widely available.”

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.